End the Bed Tax Scam

Buried in Barack Obama’s budget (last year’s, of course, because this year’s is still late) is a common sense idea for health care savings that is worthy of broad bipartisan support and immediate action: an end to the so-called “bed taxes” Medicaid scam.

It goes like this: states tax hospitals (who happen to be begging to be taxed), use those funds to qualify for federal Medicaid funds, and then turn around and give the hospitals back the money – now legally laundered – and then some. The losers? All federal taxpayers, who shell out Medicaid bucks without even the slight restraint of a small state funding requirement, and Medicaid patients themselves, trapped in a substandard health care system.

According to Obama, prohibiting these bed taxes or “provider taxes” to cover state obligations under Medicaid would save $21.8 billion. And Obama has vociferous agreement from the right on this issue. As the Wall Street Journal editorial board put it: “This is real waste, fraud and abuse, not the talking-point version.”

The problem is getting worse. Arizona is using the scam to finance a massive expansion of its Medicaid program – even after leading the charge to the Supreme Court to successfully secure its legal right to opt-out. Under Obamacare, Arizona is on the hook for just $154 million to get $1.9 billion in federal spending released. But even that’s too much for Governor Jan Brewer, who made a deal with hospitals for them to pony up the entire state share via a bed tax, then get paid back with federal funds.

The political pitch? This won’t cost Arizona taxpayers a penny. Which would be wonderful, except that Arizona taxpayers are also federal taxpayers. Republican governors who are keen on expanding Medicaid are almost certain to follow Arizona’s lead and use this trickery to put the entire cost on the back of federal taxpayers.

Governor John Kasich is already making the pitch that federal Medicaid dollars are free for Ohio, even though he should know better. As Jason Hart of Ohio Media Trackers has observed, the same John Kasich who now says rejecting the Medicaid expansion would take “federal tax dollars out of our state and gives it to other states,” emphatically rejected that thinking just a few years ago when he rejected stimulus funds for high-speed rail.

Yet “free money” is proving difficult for governors to resist. So, at a minimum, states should not be allowed to use the bed tax scam to avoid paying even their legally required 7 percent share of the Obamacare Medicaid expansion. Think about it; if a state is unwilling to spend even 7 percent, why should federal taxpayers pay 93 percent? Or 100 percent via the bed tax scam?

The saddest thing about the expansion of Medicaid, which will cost federal taxpayers at least half a trillion dollars over the next decade, is that it isn’t likely to improve health outcomes for new enrollees.

Medicaid pays doctors below-market reimbursements and burdens them with extensive paperwork and bureaucracy. Adding 12 million people to Medicaid rolls, which is CBO’s current projection of the impact of the expansion, will only exacerbate the shortage of primary care physicians and specialists who can afford to take Medicaid patients and add significantly to emergency rooms’ workload.

Medicaid is so broken that surgical outcomes for Medicaid patients are actually worse than for patients who are uninsured. A landmark 2010 study from the University of Virginia, “Primary Payer Status Affects Mortality for Major Surgical Operations,” found that that surgical patients on Medicaid are 13 percent more likely to die than uninsured patients.

While the question of whether or not to expand Medicaid is intensely polarized politically, the issue of ending the bed tax scam is not. President Obama proposed closing the loophole. He’s right, and Republicans should take him up on the offer in the next package of spending cuts they pass.